NISHIHAMA & KISHIDA, CPAs, INC. CERTIFIED PUBLIC ACCOUNTANTS FINANCIAL AUDIT OF THE DEPARTMENT OF EDUCATION STATE OF HAWAII Fiscal Year Ended June 30, 2005_part1 pptx

NISHIHAMA & KISHIDA, CPA's, INC. CERTIFIED PUBLIC ACCOUNTANTS FINANCIAL AUDIT OF THE DEPARTMENT OF EDUCATION STATE OF HAWAII Fiscal Year Ended June 30, 2005 Submitted by The Auditor State of Hawaii This is trial version www.adultpdf.com NISHIHAMA & KISHIDA, CPA's, INC. CERTIFIED PUBLIC ACCOUNTANTS Ms. Marion Higa Office of the Auditor State of Hawaii March 28, 2006 AMERICAN SAVINGS BANK TOWER 1001 BISHOP STREET, SUITE 1700 HONOLULU, HAWAII 96S13·3696 TELEPHONE (SOS) 524·2255 FAX (SOS) 523·2090 Dear Ms. Higa: This is our report on the financial audit of the Department of Education (DOE), State of Hawaii for the fiscal year ended June 30, 2005. Our audit was performed in accordance with the terms of our contract with the State of Hawaii and with the requirements of the Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and the Compliance Supplement for Single Audits of State and Local Governments. OBJECTIVES OF THE AUDIT The primary purpose of our audit was to form an opinion on the fairness of the presentation of the DOE's financial statements for the fiscal year ended June 30, 2005, and to comply with the requirements of OMB Circular A-133, which establishes audit requirements for state and local governments that receive federal financial assistance. More specifically, the objectives of the audit were as follows: 1. To provide a basis for an opinion on the fairness of the presentation of the DOE's financial statements. 2. To determine whether expenditures and other disbursements have been made and all revenues and other receipts to which the DOE is entitled have been collected and accounted for in accordance with the laws, rules and regulations, administrative directives, policies and procedures of the State of Hawaii and the federal government. 3. To determine whether the DOE has established sufficient internal controls to properly manage federal financial assistance programs and to comply with the applicable laws, regulations, contracts, and grants. 4. To determine whether the DOE has complied with the laws, regulations, contracts, and grants that may have a material effect on the financial statements and on each major federal financial assistance program. 2 This is trial version www.adultpdf.com NISHIHAMA & KISHIDA, CPA'S, INC. CERTIFIED PUBLIC ACCOUNTANTS SCOPE OF THE AUDIT Our audit was performed in accordance with auditing standards generally accepted in the United States of America as prescribed by the American Institute of Certified Public Accountants; Government Auditing Standards, issued by the Comptroller General of the United States; and the provisions of OMS Circular A-133. The scope of our audit included an examination of the transactions and accounting records of the DOE for the fiscal year ended June 30, 2005. ORGANIZATION OF THE REPORT This report is presented in six parts as follows: • Part I - The basic financial statements and related notes of the DOE as of and for the fiscal year ended June 30, 2005, and our opinion on the basic financial statements. • Part II - Our report on internal control over financial reporting and on compliance and other matters. • Part III - Our report on compliance with requirements applicable to each major program and on internal control over compliance. • Part IV - The schedule of findings and questioned costs. • Part V - Corrective action plan as provided by the Department of Education, State of Hawaii. • Part VI - The summary schedule of prior audit findings. We wish to express our sincere appreciation for the excellent cooperation and assistance extended by the officers and staff of the DOE. Sincerely, \ian.1.?>1~ Ron T. Shiigl Principal 3 This is trial version www.adultpdf.com PART I DEPARTMENT OF EDUCATION STATE OF HAWAII TABLE OF CONTENTS FINANCIAL SECTION Independent Auditors' Report Management's Discussion and Analysis Basic Financial Statements Government-wide Financial Statements Statement of Net Assets Statement of Activities Fund Financial Statements Balance Sheet - Governmental Funds Reconciliation of the Governmental Fund Balance to the Statement of Net Assets Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds Reconciliation of the Change in Fund Balance of Governmental Funds to the Statement of Activities Statement of Revenues and Expenditures - Budget and Actual - General Fund Statement of Revenues and Expenditures - Budget and Actual - Federal Fund Statement of Assets and Liabilities - Agency Funds Notes to the Basic Financial Statements 4 Page 7-8 9 - 17 18 19 20 21 22 23 24 25 26 27 - 38 This is trial version www.adultpdf.com PART I PART II PART III PART IV PART V PART VI DEPARTMENT OF EDUCATION STATE OF HAWAII TABLE OF CONTENTS FINANCIAL SECTION (Continued) Supplementary Information Schedule of Expenditures of Federal Awards AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS Independent Auditors' Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of the Basic Financial Statements Performed in Accordance with Government Auditing Standards AUDITORS' REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE Independent Auditors' Report on Compliance with Requirements Applicable to Each Major Program and on Internal Control over Compliance in Accordance with OMB Circular A-133 SCHEDULE OF FINDINGS AND QUESTIONED COSTS CORRECTIVE ACTION PLAN Response of the Department of Education, State of Hawaii SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS (Provided by the Department of Education, State of Hawaii) 5 Page 40-45 47 -48 50 - 51 53 - 61 62 - 67 69 -70 This is trial version www.adultpdf.com PART I FINANCIAL SECTION 6 This is trial version www.adultpdf.com NISHIHAMA & KISHIDA, CPA'S, INC. CERTIFIED PUBLIC ACCOUNTANTS INDEPENDENT AUDITORS' REPORT To the Auditor Office of the Auditor State of Hawaii AMERICAN SAVINGS BANK TOWER 1001 BISHOP STREET, SUITE 1700 HONOLULU, HAWAII 96813-3696 TELEPHONE (808) 524-2255 FAX (808) 523·2090 We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the Department of Education of the State of Hawaii (DOE), as of and for the fiscal year ended June 30, 2005, which collectively comprise the DOE's basic financial statements as listed in the foregoing table of contents. These financial statements are the responsibility of the DOE's management. Our responsibility is to express an opinion on these basic financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As discussed in Note A, the financial statements of the DOE are intended to present the financial position and the changes in financial position, where applicable, of only that portion of the governmental activities, each major fund, and the aggregate remaining fund information of the State of Hawaii that is attributable to the transactions of the DOE. They do not purport to, and do not, present fairly the financial position of the State of Hawaii as of June 30, 2005, and the changes in its financial position, where applicable, for the fiscal year then ended in conformity with accounting principles generally accepted in the United States of America. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information for the DOE, as of June 30, 2005, 7 This is trial version www.adultpdf.com NISHIHAMA & KISHIDA, CPA's, INC. CERTIFIED PUBLIC ACCOUNTANTS and the respective changes in financial position, where applicable, thereof and the respective budgetary comparison for the general fund for the fiscal year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated February 28, 2006, on our consideration of the DOE's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. The Management's Discussion and Analysis is not a required part of the basic financial statements but is supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming an opInion on the financial statements that collectively comprise the DOE's basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A- 133, Audits of States, Local Governments, and Non-Profit Organizations, and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. Honolulu, Hawaii February 28, 2006 8 This is trial version www.adultpdf.com State of Hawaii Department of Education MANAGEMENT'S DISCUSSION AND ANALYSIS Fiscal Year Ended June 30, 2005 The following management's discussion and analysis provides an overview of the Department of Education's financial activities for the fiscal year ended June 30, 2005. Readers should also review the basic financial statements and notes to enhance their understanding of the Department's financial performance. FINANCIAL HIGHLIGHTS Key government-wide financial highlights for FY2004-05 are as follows: • General fund revenues were $1.544 billion. Federal grant, capital project, program reimbursement, and other revenues totaled $292 million. • Total expenses were $1.838 billion, of which 96% or $1.762 billion, was spent for school-level instruction and support services. • Total assets exceeded liabilities by $768 million (net assets). Land and depreciated capital assets (land improvements, buildings, building improvements, and equipment) comprise 83% of total assets. • Net assets decreased by $19 million, primarily due to current year depreciation expense and increases in net compensated absence credits and workers' compensation liability. OVERVIEW OF THE FINANCIAL STATEMENTS The financial statements consist of three sections: management's discussion and analysis (this section), basic financial statements and notes, and required supplementary information. These sections are described below. The basic financial statements include government-wide and fund financial statements, which provide different views of the Department: • Government-wide financial statements provide both long-term and short-term information about the Department's overall financial position and results of operations. The statements are presented on an accrual basis of accounting and consist of the Statement of Net Assets and the Statement of Activities. • Fund financial statements focus on individual parts of the Department and report operations in more detail than the government-wide statements. Governmental funds statements include most of the Department's programs and services such as instruction, support services, operation and maintenance of facilities, student transportation, and extracurricular activities and are presented on a modified accrual basis of accounting. Fiduciary funds statement report on agency funds, which are held in a custodial capacity for students' school activities that take place outside of the formal class period and are not requirements for class work or credit. Certain activities, such as depreciation expense, are included in the government-wide financial statements but not the fund financial statements. These activities are highlighted in the financial statement's Reconciliation of the Change in Fund Balances of Governmental Funds to the Statement of Activities. 9 This is trial version www.adultpdf.com State of Hawaii Department of Education MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) Fiscal Year Ended June 30, 2005 Notes are included in the financial statements to explain financial statement information and provide more detailed data. The basic financial statements are followed by a section of required supplementary information. This section further explains and supports the information in the financial statements. Exhibit A-1 shows how the required parts of this annual report are arranged and relate to one another. Exhibit A-1 r I I /' Management's Basic Required Financial Supplementary Discussion Statements Information And Analysis - - - , I I Government- Fund Notes Wide Financial to the Financial Statements Financial Statements Statements Summary 10 Detail This is trial version www.adultpdf.com . NISHIHAMA & KISHIDA, CPA's, INC. CERTIFIED PUBLIC ACCOUNTANTS FINANCIAL AUDIT OF THE DEPARTMENT OF EDUCATION STATE OF HAWAII Fiscal Year Ended June 30, 2005 Submitted by The Auditor State of Hawaii This. information of the Department of Education of the State of Hawaii (DOE), as of and for the fiscal year ended June 30, 2005, which collectively comprise the DOE's basic financial statements. purpose of our audit was to form an opinion on the fairness of the presentation of the DOE's financial statements for the fiscal year ended June 30, 2005, and to comply with the requirements of